Welcome everyone to the Alaska Air Group first quarter 2010 earnings conference call. (Operator Instructions) I would now like to turn the call over to Alaska Air Group’s Managing Director of Investor Relations, Shannon Albert.

Thanks, Christie. Hello, everyone and thank you for joining us for Alaska Air Group’s first quarter 2010 earnings call. Today Alaska Air Group’s CEO, Bill Ayer, will provide a company overview; CFO, Glenn Johnson, will talk about Air Group’s financial position and Alaska President Brad Tilden and Horizon Air President and CEO Jeff Pinneo will comment on the financial and operational performance and future initiatives of Alaska and Horizon. Other members of the senior management team are also present to help answer your questions including Alaska’s recently elected Vice President of Marketing, Joe Sprague. We are making a slight change to our Q&A process today and will invite both analysts and journalists to queue up together at the end of our prepared remarks. Today’s call will include forward-looking statements that may differ materially from actual results. Additional information on risk factors that could affect our business can be found in our periodic SEC filings available on our website. Our presentation includes some non-GAAP financial measures and we have provided reconciliation between the most directly comparable GAAP and non-GAAP measures in our earnings release. This morning, Alaska Air Group reported a first quarter GAAP profit of $5.3 million. Excluding the impact of mark to market adjustments related to our fuel hedge portfolio, Air Group reported an adjusted net profit of $13.1 million or $0.36 per share. This compares to a first call estimated mean net profit of $0.35 per share and to last year’s adjusted net loss of $25.4 million or $0.70 per share. To look at it another way our first quarter results improved by $38.5 million or more than $1.00 per share. Additional information about expected capacity changes, unit costs, fuel hedge positions, capital expenditures and fleet count can be found in our investor update included in our form 8-K and available on our website at alaskaair.com. With that I will turn the call over to Bill Ayer.

Thanks Shannon and good morning everyone. We are very pleased to report our best first quarter since 1999 and our results were driven by a record first quarter load factor, improving yields and first bag fee revenues partially offset by an increase in the cost of fuel. In addition our ongoing network restructuring has continued substantially to the quarter’s profit. As you know, this is seasonally our weakest quarter of the year and one in which we usually post a loss. In fact, the last time we announced a first quarter profit was in 2006 when we reported less than $3 million in net income and prior to that in 1999 when we earned $20 million. As in 2009 our biggest opportunity this year is to improve the top line with a specific focus on increasing network and ancillary revenues. To that end we are continuing to redeploy capacity to new markets. In addition to the new Portland/Honolulu service we announced last week today we announced new service to Hawaii from San Diego along with some other changes Brad will touch on in a few minutes. While our fleet size as remained essentially flat, over the past 24 months Air Group has entered 26 new markets including those announced today. In addition we have initiatives underway to improve ancillary revenues and to do it in a way that is understandable and viewed by customers as fair and reasonable. One important source of ancillary revenue is checked baggage and today we’re announcing a modification to those fees. Beginning June 16th we will charge $20 each for the first three bags. That is an increase for the first bag from the current $15 but a decrease for the second and third. We expect this change to be accretive to revenues to the…

Thanks Bill and good morning everybody. As Shannon said Air Group had an adjusted net profit of $13.1 million or $0.36 a share in Q1 2010 versus an adjusted net loss of $25.4 million in the same quarter last year. Those adjusted results equate to a 12-month trailing return on invested capital of 6.9% at the Air Group level which compares to 4.1% in the 12 months ended Q1 2009 and is approaching our weighted average cost of capital. On a pre-tax basis our first quarter results improved by $62 million. A couple of things drove the improvement. First, consolidated revenues increased by $87 million primarily driven by strong load factors at both carriers but revenues were also bolstered by two other items, $23 million in bag fees and I would note we will see this again in the second quarter from the annualization of the first bag fee. Second, $10 million of changes attributable to the Affinity Card agreement which we revised in the second quarter of 2009. The revenue gains were offset by $27 million increase in economic fuel costs. With oil on the rise a couple of people have asked whether or not we would consider increasing our hedge coverage. The simple answer is no. Our practice of hedging 50% with caps for crude oil works really well for us. There is a table in our investor update that summarizes our hedged coverage over the next few years but we are well positioned with 50% of our planned consumption for the balance of this year at $75 per barrel. Our consolidated non-fuel operating costs were about flat. On the positive side we had lower pension costs than we anticipated and we have seen savings from our productivity initiatives and fewer FTE’s. Those positives were offset by the…

Thanks Glenn and good morning to everyone. For the quarter Alaska Airlines reported an adjusted pre-tax profit of $26.5 million compared to a loss of $26.6 million in the first quarter of 2009. I want to thank all of our employees who have worked so hard and congratulate them on these fantastic results. For the quarter Alaska’s mainline passenger revenue increased by $47 million or almost 9% due to a passenger unit revenue increase of 8.3%. This increase was a function of our 5-point improvement in load factor and a small improvement in yield. Looking at the individual months, passenger RASM increased by 3% in January, a strong 13% in February and by 10% in March. Our 8.3% PRASM increase compares favorably with the domestic industry increase of 7.5%. If you compare this first quarter with the first quarter of 2008 our unit revenues increased 6% versus a decline of 3% for the industry. Nearly every one of our regions posted unit revenue increases and we saw particular strength in the Southern California, Bay Area, Arizona, Nevada and Transcon regions. As you know, we have reduced capacity in many markets in these regions over the last several scheduled periods. Over the last year or so we focused on reducing the seasonality of our results. We have been identifying routes we can fly profitably during the fall and winter months, managing our scheduled frequency more aggressively to increase load factors to high levels during months that are traditionally soft and moving as much of our training and vacations as possible out of the busy summer months. We are very encouraged by the first quarter results. Making a profit and flying at an 80% load factor are great indications our people in the network planning area and throughout the company are on…

Thank you Brad and good day everyone. Horizon also made progress this quarter posting an adjusted pre-tax loss of $3 million compared to a loss of $12.2 million in the first quarter of 2009. About half of the improvement was the result of higher revenues driven by brand yield and load factor increases offset by higher fuel costs. The other half came from the absence of Q200 transition costs this quarter. Touching first on revenue our total revenue for the quarter increased $11.6 million or 7.9%. Our flying between the Northwest’s four largest cities of Seattle, Portland, Spokane and Boise improved greatly during the quarter. These markets which together constitute 31% of our brand flying saw a 6% year-over-year increase in revenue and an 18% improvement in PRASM on a 10% trim in capacity. Day of week frequency reductions of selected routes also helped improve revenue quality during the quarter. A part of our revenue story stems from customer preference driven by outstanding operational performance. Our on-time performance led the nation in 2009 and placed us as Bill said among the top five carriers in the world. So far in 2010 we have gotten off to an even better start. Our 88.8% performance in the quarter was nearly 8 points better than last year. While comparatively good weather played a role, much of the credit for this can be placed to the skill and dedicated teamwork of Horizon’s people; folks I am proud to work with and very thankful for. Turning to expenses for the quarter our CASM X fuel and fleet transition charges increased 1.7% on less than 1% increase in capacity. Scheduled maintenance timing and accruals for broader participation in our performance based pay plan account for much of the variance. In contrast to Alaska where much attention…

Thanks Jeff. Let me once again congratulate our employees for a great first quarter as we prepare for what looks like a very busy summer. Operator, with that we are ready for questions.

(Operator Instructions) The first question comes from the line of Bill Greene - Morgan Stanley.

I am wondering if we can talk a little bit about the fact that historically it is safe to say you really haven’t been viewed as a company that would acquire other airlines but you have clearly found a model that is certainly driving success financially which is a pretty powerful statement in this industry. What would the world look like or what sort of situational facts that would allow to reconsider that view and maybe think about acquiring another company and maybe applying this or even just acquiring assets? How do you think about that?

We have been spending the last decade restructuring the business and that has been 100% of our focus and we are not there yet. We have work left to do. We haven’t spent a lot of time thinking about that. The M&A question in the other direction is one that we have been asked a lot and the answer is really the same. It is really a question about what is the best path for shareholders. That is what all of this comes down to. How do we improve and optimize over the long-term the shareholder value? We believe that the path we are on which is remaining independent, growing organically profitable growth is the way to go. We are not to the ROIC number we want yet. We are getting closer which is really good but we have work to do. We are sticking with the plan and making good progress. I think that is as much as we think about it today. We still have more to go and we are pleased with the results.

This is sort of a little bit of a different question and you kind of answered it a little bit with your comment just there. Would you ever consider a bigger aircraft to take you to non-North American destinations?

The same kind of answer. We really like the single fleet that we have, the simple fleet of all 737’s and the fact that we have got this difference within this family from 700’s, 800’s, 900’s and 400’s that allow us to match capacity with demand. The 737 does all our missions really, really well and we have realized a lot of synergy and a lot of cost savings with a single fleet. It is a remarkable airplane. We think again we are focused on it. And we haven’t got all the synergies out probably in the MD80 transition. There is probably still more to go. Then over at Horizon of course we want to do the same thing with the single fleet there. So when there are market opportunities to move out of the [yard chase] we are going to do that and we are going to be really good at operating Q400’s and hopefully a growing fleet of profitably deployed Q400’s.

The next question comes from the line of Hunter Keay – Stifel Nicolaus. Hunter Keay – Stifel Nicolaus: I noticed in your prepared remarks you pointed out some regions of strength that are really heavily served by Southwest. Should we assume that you have been specifically targeting price increases in those markets where Southwest plays given the fact that your competitive capacity is really coming down against them?

My general sense is that all of the players in the markets we mentioned, the Bay area, Southern Cal, Arizona and Nevada have been pulling capacity in. That has been really good for the economics for all of us. I think if you look at Southwest frequency you would find that. So pulling the frequency down in those markets has been really good for the load factor and good for RASM. You saw that we had 5 point improvement in load factor for the first quarter. Then the opportunity Alaska has as a smaller airline is to move those airplanes into Atlanta, Houston and a lot more frequency in Hawaii and those are all places that all of that revenue we know is new to the company. Hunter Keay – Stifel Nicolaus: I guess then in that sense a little more color on March PRASM would be helpful because it looks like the first quarter number implies a little bit sequential degradation in March PRASM despite the fact you had an easier comp. Was there maybe some pricing opportunities that maybe you missed? Were you focusing on loads or maybe a bit more color there would be helpful.

I might start and ask Andrew Harrison to help. As you know the load factor was up six points in January and February. It was up around 3 in March. But the yield did get better as we moved forward in the quarter. It was actually down in January, up a touch in February and up 5-6% in March. So we saw a pricing strength. The volcano last year might have affected March comps as well.

You may recall Mount Redoubt erupted last year where we pulled down especially in the last week of March up to 10% of our capacity there and at the end of the day our loads got very full. The other thing, just to add to Brad’s comments, is the yield as we got to March was up 6.3 and that is on 2.2% ASM growth versus we shrunk 2.4% in February. So we are trying to find that wonderful balance between supply and demand and as we get fuller and into the 80% load factor range to really make sure we leverage that on the yield side which is what we successfully did in March. Hunter Keay – Stifel Nicolaus: I would love to get a little bit more color on how you view your code-share partnerships mostly with AMR and Delta and how you view those ramping. Is there flexibility built into the Delta agreement that allows you to increase the code-share if theoretically Delta starts relying on Sea-Tac as sort of an Asian gateway? Is there flexibility that you could ramp up the code-share with Delta?

We obviously don’t make public some of the agreements we have with our code-share partners but a couple of things to point out. Number one, we certainly do and you have seen us have a lot of code-share with Delta over the last six months down into Los Angeles and into Mexico. The other thing, this time last year and this is why we have been able to expand our network and get greater business presence is this time last year we were using American to put passengers beyond their Chicago hub. This year as you see here today we have beyond markets through Atlanta. We have them now with Dallas/Ft. Worth with American and we have Minneapolis. So we have substantially increased the number of places our passengers can fly in our markets across the country and we have found that to have very positive results on both our load factors and the ability for our passengers to go directly to their locations out over the Pacific Northwest versus having to try other carriers and fly through their gateways.

Delta is starting service this summer from Seattle to Beijing and a flight from Seattle to Osaka and those will have the code on them and we expect those to do very well for both of us.

The next question comes from the line of Helane Becker - Jesup & Lamont. Helane Becker - Jesup & Lamont: Can you update us on now with these changes in Hawaii and Mexico the percent of your capacity in Hawaii, Mexico and also what percent of your capacity would be considered monopoly markets within the state of Alaska?

Hawaii has really, really grown. With these announcements today we are up to 101 flights a week, 14.5 flights a day. I will just remind everyone that is from no flights to Hawaii three years ago. We think Hawaii is going to be 15-16% of our ASMs once we kind of annualize all of this and kind of get it onto a full-year basis. The state of Alaska was the second question. Andrew, 20-21% if we were to look at it annually?

Yes. In the summer it gets up to 23% long haul. The other thing to note though is there has been a significant increase in capacity this summer by other airlines in the state of Alaska but we feel very good about where we have our capacity this summer in the state of Alaska.

The Mexico figure we are just pulling here. It is about 8-9%.

For the second quarter it is about 6.5 and then for the third it is 4%. Just on that, which will become public today, but we have exited Cancun so we pulled out of Los Angeles/Cancun and now Seattle/Cancun and these are some of the reallocations you have heard us say there will be immediate return to shareholders from taking that 6 hour flight out of Mexico and putting it in the Hawaiian markets.

Mexico is maybe 6-7% if you were to annualize it now. Helane Becker - Jesup & Lamont: So that has really come down a lot as Hawaii has gone up a lot relative to your prior plans?

I would say it has come down a point or two.

One clarification there that Alaska number that was thrown out that is not monopolistic. That is simply our capacity in the state of Alaska. The number of markets that we are a monopoly presence is very, very few I think. Very, very small.

The clear majority of the Alaska traffic is long-haul traffic between Anchorage and Fairbanks and the lower 48. We actually have a lot more competition in that market this summer. If you look there is nonstop service from Fairbanks down to the lower 48. I think from Anchorage to most of the big airline hubs this summer. It is quite a bit more than there was last year. Helane Becker - Jesup & Lamont: Can I ask one passenger related question before I go? On your frequent flyers are you able to tell what percent of your flyers have an American Advantage versus a Delta, whatever their thing is, frequent flyer number versus your own?

I don’t know we have that data available. Obviously we have a lot of frequent flyers that are members of our program that are members of multiple other programs. I am not sure we have the specific detail on that.

The next question comes from the line of Steve O’Hara - Sidoti & Company. Steve O’Hara - Sidoti & Company: Could you talk about your CASM guidance? Does that include the payout above target?

Our CASM guidance does include our estimated incentive payout at this point. As Glenn mentioned it is a little bit uncertain because we don’t know exactly where the full-year is going to come out. It has been a headwind versus our original target but yes, to confirm, it does include our best estimate right now of where we will be for the year. Steve O’Hara - Sidoti & Company: How does fuel affect that target if fuel were to substantially increase? Does that change that payout or is it based on other operational factors?

It does change the payout. The biggest piece of the PBP plan as we describe it is based on profit and profit is dependent on fuel. So changes in fuel prices can materially affect the PBP payout and thus the accrual for incentive pay on the books. Steve O’Hara - Sidoti & Company: In terms of overall capacity to Hawaii it seems like it is going to be up this year. Has that affected pricing or is demand still kind of outpacing that?

We have been very happy with that. Again, as noted earlier, there have been other reductions of 757’s and bigger gauged aircraft that were going in. The reality is we have just seen a very strong demand. We have the lowest prices out there. Again you see very low fares today in Hawaii and we have been very happy with the growth and as Glenn shared earlier we will not continue to grow markets that don’t return to the shareholder and we feel very good with the Hawaii growth right now.

There is one thing I want to point out very clear. We do have the lowest fares from the West Coast to Hawaii using DOT data. I am not sure what is happening with market fares but Alaska is bringing new, lower fares to the state of Hawaii.

The other thing I would say is going back to the great fleet that we have. The 737-800 is particularly well suited for the nonstop service to the other islands, especially where there is already a lot of wide body service to Honolulu. Our sweet spot really is the Maui, Kona and [Lihue] and it is working really well and we hear from customers their preference for the nonstop, not going through Honolulu and changing planes.

The next question comes from the line of Dan McKenzie – Hudson Securities. Dan McKenzie – Hudson Securities: Alaska in the past has targeted non-fuel CASM of 7.25 cents. Obviously we are a ways from that today. My question is what opportunities are there for Alaska to lock the non-fuel CASM stat lower longer term versus where it is today?

You know, 7.25 made sense when we came out with the 2010 plan. I think where we are at now it is progress. We need to have lower costs so we can be competitive and as Brad said offer our customers the value that they demand. Whether 7.25 is ultimately the right number is unclear at this time. It depends on the revenue environment. It depends on what fuel costs. I think what we know is we need to be somewhere south of where we are now and we are going to continue to work productivity and overhead reduction and other cost reduction measures in order to get there. It is continually driving costs down so we can remain competitive. Dan McKenzie – Hudson Securities: Circling back to the organic growth comment earlier, the fleet plan is essentially flat over the next several years. So I am wondering absent more shells how much capacity could Alaska add simply by increasing productivity?

I will ask Andrew to jump in on this as well but we certainly still are using the airplanes we have a little less each day then we were a year ago or certainly at their peak. So we think there is some opportunity to get a few more units worth of utilization across the higher fleet of 100 plus airplanes. Beyond that we certainly have the ability and call it a buyer’s market if you will to extend leases if profitable opportunities presented themselves and we needed more units before the ability to exercise options out into the 2012 period. Dan McKenzie – Hudson Securities: That sounds like about 2-3% capacity if I understand your comments correctly?

About a hundred.

The next question comes from the line of Gary Chase - Barclays Capital.

I wanted to follow-up a bit on the trends you are seeing the book load factors are up and are pretty strong. There are some folks that are suggesting that with improving close-in demand they have started to transition to a different paradigm in terms of the way they are looking at those advances. So I am curious if you could elaborate on your thought about how that is playing out? I know you did mention the accelerating yield trends through the quarter but your sense of how your close-in demand is looking and why the book load factor is up strong like that?

A couple of things. You are spot on there as far as the load factors go. As we move now into traditional territory we rerun about 80% and certainly in the summer our goal is to be very aggressively managing the inventory that we have. As we said earlier, as we move 3-3.5 points we continue to see good yield growth as we move forward. With the return of business traffic our goal will be to make sure we maximize the revenue by ensuring we have the right balance between the yield and the load factor. One other thing of note would be with all of these increased long-haul flying both transcon and even to mid-con and obviously Hawaii they run traditionally at much higher load factors than the average core network has done historically. So we have also a natural upwards pressure on our load factors as you see with all this new flying coming on.

There was kind of some similarity when you did your fourth quarter call and were looking ahead into the first where you talked about the strength in book loads and I think at one point you said you expected yields to more or less offset that. I guess, looking backward on the quarter you just had close-in demand looks like it came in quite a bit better than what you were anticipating just based on the RASM performance. Should we expect that is a trend that will carry well into the second quarter? Is it from your vantage point?

Firstly you are correct. Demand came in stronger than we had anticipated. We break our world up into our advanced traffic bookings in two worlds within 120 days and outside of 120 days. Our outside of 120 days out to 330 is booking strong. In fact our percentage increases in traffic year-over-year are almost double at this point our increase in ASMs which is a very good thing. We are also seeing similar trends in the closer in bookings but it is not as acute. In short, we are seeing good strength in the closer in bookings as it relates to all of our markets really across the board specifically in transcon and mid-con markets.

I was curious, you talked about the desire to pay down debt and buy aircraft for cash, prepaid debt is your use of cash. You were talking about redesigning the airline. Certainly if you look at the last 10 years the industry has seen a lot of adversity. While your results have been cyclical they have been stable and you have been profitable through the vast majority of it of course. I am curious for your thoughts on at one point you started to do a buyback. Under what conditions would you entertain maybe taking in some of the equity just to reflect the stability that you have obviously got there?

I am not sure of your question. Are you talking about a dividend possibility?

Or a share repurchase.

This gets to the commitment we have to shareholders and improving shareholder value. So this is a board decision and we are completing the last trench of our share repurchase that we have out there right now with the board authorization. Where we go from here I think is subject for a future board meeting. The principle here, the commitment is shareholder returns, returning capital to shareholders at a rate that is commensurate with the risk of their investment. It is something [inaudible] we haven’t done a good job of as you well know. It is a commitment we have and we are going to keep working it and we are encouraged, as I said, with our results and profitability is the biggest thing we can do to influence this. Driving higher earnings, getting that ROIC number and then stock appreciation should take care of itself.

At this time we have reached the allotted time for questions. I would now like to turn the conference back over to Shannon Albert for any closing remarks.

I thank everybody for participating with us today. We will talk with you next quarter. Thanks very much.

Thank you for participating in today’s conference call. This call will be available for replay beginning at 1 p.m. EST, through 11:59 p.m. EST on May 22, 2010. The conference ID number for the replay is 38150559. The number to dial for the replay is 800-642-1687 or 706-645-9291. Also, the call will be accessible for future playback at www.alaskaair.com. You may now disconnect.